Home >Budget >Opinion >It is time to tackle inequality by shifting the economic paradigm

The annual budget exercise is an important event not merely as a statement of the country’s financial accounts, but also as a statement of intent to lay out the priorities of the government for the next year. However, they have rarely been seen as such. But budget 2021 comes at a rare moment in history. The scale of India’s economic challenges makes it imperative for it not just to spell out the government’s priorities, but also provide direction on a much-needed change in the country’s economic paradigm.

Some of these challenges have been building up over time, culminating in the sharp slowdown of the economy seen in the last three years. Perhaps the most important is the challenge posed by the pandemic and the consequent economic disruption it has caused. The extent of disruption is only partly captured by forecasts of gross domestic product (GDP), which is seen falling by around 8% in 2020-21. The budget’s top priority should be to invest in public health infrastructure, which should include not just physical infrastructure, but also human capital. Given the low priority this sector has received over the years, there could be no better time than now to expand public health provisioning. The other neglected sector is education, which has also seen large disruptions due to the pandemic, with educational institutions unable to reopen even now. The shift to online teaching has reinforced some Indian inequalities in the quality of and access to education, and exacerbated others.

While the pandemic may have reminded us of the importance of investment in human development, something that has been neglected over the years, it has also laid bare the inequality that has built up over time. The least-protected informal sector faced a severe loss of income and jobs, while the formal sector negotiated the pandemic much better. Three decades of economic reforms have led to a secular rise in inequality across all categories, including on the basis of region, gender, caste and religion. This is reinforced by the job losses and decline in incomes. The challenge of creating adequate and decent new jobs for an ever-increasing workforce remains India’s Achilles heel. This has also contributed to a decline in wages and incomes, which has in turn adversely affected poverty reduction. Recent data on nutrition from the National Family Health Survey and India’s junked consumption survey point to a worsening of nutritional outcomes along with decline in food intake. While most of this data is from pre-pandemic times, there is every likelihood that the problems would have worsened after. Finally, the distress in the rural economy, in particular the agrarian sector, is now a serious crisis. The ongoing farmer agitation may be over the issue of the three farm bills enacted last year, but the real reason for their anger is the decline in farm incomes and withdrawal of state support. Occasional shocks such as demonetization and global price factors may have contributed, but it is a flawed policy regime for agriculture that is at the core of their problems.

The finance minister now has an opportunity to provide a road map for the addressal of these long-standing structural issues. The solution lies in investing in people, who are the greatest asset of this country. This not only requires greater investment in human capital through education, health and nutrition, but also increasing the purchasing power of those at the bottom of the income/wealth pyramid. This will not only create demand for locally-produced goods, thus helping the Atmanirbhar Bharat mission, but also ensure a revival of the economy. Further, it will reduce inequality on various dimensions and prevent the Indian growth story from getting derailed.

This, however, will require the government to give up its obsession with the fiscal deficit. It will also require it to move away from its pro-capital policy stance to a pro-people regime. Expenditure patterns should be re-oriented towards rural areas, especially agriculture, creating non-farm jobs, and towards social protections for the vulnerable. Despite the economic distress, the country has enough space to generate more resources and spend.

An annual budget may not be the best document to do all this, given its limitations as an accounting exercise. But it is certainly an important instrument to signal a shift in the economic paradigm that successive governments have followed. The pandemic has provided an opportunity to reset India’s economic model. It is up to Nirmala Sitharaman to take it or leave it.

Himanshu is associate professor at Jawaharlal Nehru University and visiting fellow at the Centre de Sciences Humaines, New Delhi

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